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Friday, May 26, 2006

Woes of the corporate bond market

India is a strange mixture of extremely active trading in equities, very little leverage by firms, and a very small corporate bond market. It's odd: given how deeply related the securities issued by one firm are, liquidity for one kind of contingent claim about a firm ought to easily translate to liquidity for correlated products. Last year, the R. H. Patil report proposed some new ideas on how to jumpstart the corporate bond market. This is being implemented at SEBI. You think it ought to be simple? No such luck!

The 18 April policy statement (para 135) by Y. V. Reddy said that RBI would constitute a Working Group to examine the relevant recommendations and suggest a roadmap for implementation. Consultation will be held with SEBI and IRDA as appropriate. Is this back to turf conflicts? On the other hand, this might merely reflect an honest effort by RBI to implement work required at RBI - e.g. on solving problems of banking regulation.

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